Why a Proactively Transparent Supply Chain is Smart Business Practice

While it’s true that governmental over-regulation stifles growth and often gives companies the feeling of being under siege, a proactive habit of transparency in the supply chain — initiated by the company, flowing out from within its culture — can be beneficial to both the consumer and the company’s bottom-line.

MIT Supply Chain Researcher Analyzes Proactive Transparency

Alexis Bateman, director of the Responsible Supply Chain Lab at the Center for Transportation & Logistics at the Massachusetts Institute of Technology, sees certain benefits to proactively embracing transparency in the supply chain instead of fighting it.

As quoted in a recent September 2015 article by SCDigest.com, Bateman wrote: “Uncertainty over the trustworthiness of supply chains erodes consumer trust, a trend that should concern any enterprise. Companies should recognize that greater supply-chain transparency can allay consumer fears and capture commercial benefits.”

She outlines three specific benefits that proactive supply chain transparency brings to companies:

It builds the brand.

Proactive, aggressive transparency meets demands for responsible practices. It demonstrates the integrity of their operations with trustworthy data. This keeps consumers informed and benefits the company by building a stronger trust relationship between shoppers and the brand. Bateman explains that this transparency can come in the form of:

product ecolabels

corporate sustainability reports

sending reports to the Global Reporting Initiative or other similar organizations

media outreach

She cites the “Track a Fishery” program, from the Marine Stewardship Council, as an example. The program makes it possible for companies to investigate and verify the trustworthiness of fisheries and seafood shipments. This also allows companies to put a certified label on their products confirming the company’s participation in this program.

Bateman uses the cocoa business as an example for this second point. She notes that, “poor wages, high costs and low plantation productivity” are the culprits for many farmers exiting the cocoa industry, which causes supply problems. The solution: cocoa buyers are bringing in training programs for farmers and increase prices paid to ensure stable long-term supply.

Efficiencies offset cost.

Yes, the cost of implementing meaningful traceability discourages companies from embracing it. But increases operational efficiencies can offset these costs, Bateman says. Transparency means greater visibility. Greater visibility means that the company has more intelligence. It not only makes decisions to eliminate problematic ethical situations, but the transparency also allows the company to make better decisions in all of its operations, which will certainly boost the bottom-line.

Bateman offers a few specific examples of potential operational efficiency: “eliminating steps and actors in the supply chain, verifying the efficiency of practices upstream and smoothing price volatility by working directly with suppliers instead of using middlemen.”

She cites the improving coffee industry, which has been putting these practices into place, as proof. And, of course, the Internet of Things also gets a mention. Genetic food markers, RFID tags, and mobile phone compatible barcodes are examples of IoT. Such technology can make detailed transparency attainable.

Governments tend to exhale regulations as humans exhale carbon dioxide. Instead of waiting for the inevitable, Bateman urges companies to get ahead of the curve and be proactive. Taking action when no one is yelling at them to do so will also give companies more control over when and how they execute their transparency efforts.

The Example of Nordic Countries

There is one corner of the supply chain planning industry in particular that provides a fascinating example of proactive transparency: the Nordic countries. What makes it especially fascinating is that it is a natural extension of their culture.

Martindale explained it this way: “Culturally, this is a part of the world where corporate social responsibility (CSR) – including both environmental and ethical aspects – is particularly important to governments, the general population and organizations. Consequently it is a strong area of interest for those working in procurement functions.”

This deeper concern flows directly from Nordic culture into how they execute business deals. As Martindale’s article notes: Finland, for example, still allows handshakes to signify a commitment and conclusion to a business deal.

But just because it’s a part of their culture doesn’t mean the job is easy either. Per Hill, the chief procurement officer at Getinge Group, a medical care company, admits that the auditing of international suppliers can require plenty of burdensome work. But he insists on it: “…we’re looking to buy more from low-cost countries and have to be aware of why they’re low-cost countries, and make sure they are not infringing our supplier code of conduct [i.e. ensuring that there was no child labor involved or other ethical issues].”

In the Finnish timber and plywood business, Jani Riissanen, the chief purchasing officer for Metsä Wood, explained to Martindale that they must ensure that their core material (logs) do not come from illegal sources.

Given the remote locations of these Nordic countries, many materials must be sourced from outside. It’s therefore even remarkable that they proactively embrace a culture of transparency when their geographic location makes such policies less convenient.

However, these companies enjoy strong relationships built on trust — whether it’s with a customer or with a vendor — as a result.

Avoiding a Culture of Non-Transparency; Embracing Visibility

Pursuing a deeply embedded culture of transparency as the Nordics have done not only reaps benefits, it also protects companies from a different culture: the virus-like culture of non-transparency. If such a culture is allowed to fester unchecked, it inevitably leads to blow-ups that eventually find the light of day.

A recent example of such a blow-up can be found in this UK headline: “Sunshine Rule to Force NHS Staff to Disclose Gifts and Hospitality from Drug and Equipment Suppliers.”

England’s Health Secretary Jeremy Hunt used the T-word when he made this statement in wake of the NHS scandal:

As with so many issues in the NHS, the answer is greater transparency. These tough new rules will for the first time expose improper relationships between staff and pharmaceutical companies. Only those serving their own self-interest should have anything to fear, with patients and taxpayers set to benefit.

When the culture of non-transparency takes over, it tends to encourage individuals within the organization to prioritize self-interest above all other values. That kind of me-first culture eventually blows up in the company’s face.

Swimming Against the Current: A Few Parting Tips for Greater Visibility

Human nature, in its default mode, tends to be reactive rather than proactive. This characteristic can certainly become the defining posture of a company as well as we do the minimum and only take action when outside forces cause us to react. However, research suggests that proactive transparency — i.e. measures enacted by a company’s free will to promote a culture of transparency — can bring a tangible boost to the bottom-line.

Stephanie Miles, the Senior Vice President of Commercial Services at Amber Road suggests these three tips for greater supply chain visibility:

quick access to global supply chain information

proactive supply chain alerts and the ability to manage by exception

efficient collaboration with global trading partners

Miles summarizes it well: “This type of visibility is more than tracking and tracing on the transportation leg. It’s following a product concept and subsequent purchase or sales order from design to final delivery, with all the compliance and finance steps along the way.”

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